Jean Christophe de Beaulieu

Global systematic investment specialist, Acadian Asset Management LLC, has warned investors about the dangers of latching onto popular investment slogans, and urged financial advisers to speak to clients about the risks inherent in chasing broad macro themes.

The group’s latest paper: Rising Tiger, Falling Dragon: Theme Du Jour in emerging markets equity investing, addresses the latest catchcry depicting the recent surge in Indian stocks and the disappointing performance of Chinese equities.

According to Ram Thirukkonda, Acadian Senior Investment Strategist, and co-author of the paper along with Portfolio Manager Chris Covington, catchy slogans can be cute and fun but they are also superficial and reflective of past price trends, leaving investors who follow them exposed to sudden reversals of sentiment.

The Rising Tiger, Falling Dragon theme currently trending is a satirical take on the Chinese movie, Crouching Tiger, Hidden Dragon.

“Macro thematic investing in emerging markets is risky and restrictive, and themes that start off captivating the market usually end up frustrating investors,” Thirukkonda said, citing examples including BRICS (Brazil, Russia, India, China and South Africa), BATTS (Baidu, Alibaba, Taiwan Semiconductor and Samsung) and the Fragile Five (Brazil, India, Indonesia, South Africa and Turkey).

“These past themes highlight the shortcomings of a simplistic view. For example, from 2017-2020, the emerging market tech stocks known as BATTS climbed 30% per annum, but when the BATTS-centric growth theme ended in late 2020, investors lost close to a quarter of their three-year gains in about forty days. Those who remained invested for another year, ended up forfeiting the bulk of their gains.”

Instead, investors should stay broadly invested and embrace active strategies that cast a wide net over the full investment universe and identify opportunities based on much richer information than just the macro picture, the Acadian paper states.

In Australia, Acadian offers a number of global equity strategies, which can be invested in emerging markets on an opportunistic basis.

According to Jean Christophe de Beaulieu, Head of Investments at Acadian Asset Management (Australia) Limited, investing based on fundamental, bottom-up stock analysis is more rewarding for investors than relying on top-down calls.

“One of the most dangerous things about following macro themes is that there is usually some truth to them. In the case of Rising Tiger, Falling Dragon, Indian stocks have rallied while Chinese equities have struggled for several years,” de Beaulieu said.

“At a superficial level, India and China appear to be polar extremes from an economic perspective, however, divergent macro trajectories don’t necessarily imply a promising investment opportunity. Furthermore, economic optimism about India and pessimism about China are broadly reflected in market valuations.”

“As investment professionals, we don’t place weight on slogans but we can’t assume others don’t. For advisers looking to actively engage with clients, particularly younger people, investment slogans and memes provide an easy talking point and an opportunity to demonstrate their expertise by warning of the potential dangers of following macro themes.”

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Mr Wong will focus on research across all facets of Acadian’s Australian and global quantitative equity process, working alongside the global research team based in Boston.

Mr Wong has 10 years’ experience and joins Acadian from Macquarie Investment Management where he was a Quantitative Analyst, spending the past seven years doing quantitative research in the systematic equity team. Prior to Macquarie, he spent several years in investment banking, acquiring a unique mix of corporate finance and quantitative experience at RBC and before that at Rothschild.

Mr Wong has a Master of Finance, a Bachelor of Commerce (Finance), a Bachelor of Engineering (Bioinformatics) and is currently finishing off his PhD, focused on applying machine learning in financial markets. He was awarded the University Medal in Bioinformatics.

Mr Wong is based in Sydney and reports to Acadian’s Australian Head of Investments Jean-Christophe de Beaulieu.

“We are very excited to have such a strong addition to the local investment team and for the skillset that Steven brings,” said Mr de Beaulieu.

“Steven’s appointment will help us to further advance our research program as we continually look to enhance our investment process.”

“Steven will work closely with the team in Sydney and as part of our global research team. Given his skillset and experience, we expect he will be involved with various projects, including machine learning related research”.

Mr Wong’s appointment takes Acadian’s Australian team to 16 people in Australia.

Acadian is a quantitative firm founded in 1986, based in Boston USA with affiliates located in London, Singapore, Tokyo, and Sydney. It oversees A$133billion in assets under management globally as of 31 October 2020, on behalf of major pension funds, endowments, foundations, governments and other institutional investors around the world. It manages $8.9 billion in assets on behalf of Australian and New Zealand investors.

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